Q: My husband and I are interested in adopting a child from India. I have heard there is a tax credit for adoption. Can you explain that tax credit to me? Does it apply to foreign adoptions?
Jamie, Groton CT
For more on this topic, see IRS Tax Topic 607, Adoption Credit.
The adoption credit is $11,650 per child adopted. The credit phases out for households with AGI between $174,730-$214,730. The above numbers are inflation-adjusted annually, and represent the 2008 levels. Additionally, the credit amount may also be excluded from your income if paid for by your employer.
If the adoption credit is claimed over multiple years, prior year credits claimed reduce the allowable amount in the current year.
If you are adopting a foreign child, only $5000 of the costs before 2002 associated with the adoption can be used to determine the total costs. Any costs after 2002 fully count. Adoption expenses for a foreign child can only be taken after the adoption is finalized.
The credit is not refundable. That is, if it cancels out your tax in the year the credit is taken, the remainder is not refunded that year--nor is it lost. Rather, it rolls over to a future tax year to credit against tax.
Eligible adoption expenses include:
- reasonable and necessary adoption fees
- court costs
- attorney fees
- traveling expenses (including meals and lodging)
- other expenses directly related to and for which the principal purpose is adoption
The adoption must be for a child under the age of 18 unless the adoptee is physically or mentally unable to care for himself.
If you adopt a child with special needs (as determined by a state governing authority), your expenses creditable may be eligible to be increased.
The credit is not available to married filing separately taxpayers.
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